Only Express Waiver Can Cure Arbitrator Ineligibility, Not Conduct Or Panel Appointment: Delhi High Court

On 13 April, the Delhi High Court held that an arbitral award is vitiated where the sole arbitrator is ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996, and clarified that such ineligibility cannot be cured by implied consent, procedural participation, or panel-based appointments unless there is an express written waiver after disputes arise.

A Division Bench of Justices C. Hari Shankar and Om Prakash Shukla dismissed the appeals filed by Titagarh Rail Systems Limited and affirmed the judgment of the Single Judge setting aside the arbitral award. It held:

“In fact, the situation which exists in the present case is that the very invocation of the procedure, envisaged in the contract between the parties as being applicable in a case in which Section 12(5) stood waived, was itself illegal. That procedure applies only where there is waiver of the applicability of Section 12(5). Inasmuch as there was no such waiver in the present case, the procedure itself would not apply. By erroneously invoking the procedure which applies where Section 12(5) has been waived, waiver of Section 12(5) cannot be implied.”

Through a contract dated 30 September 2020, Titagarh Rail Systems agreed to supply railway wagons to the Railway Board.

The Railway Board short-closed the contract on 20 March 2023, cancelling part of the supply and imposing financial consequences, including forfeiture of a bank guarantee of Rs. 5,00,00,000 and levy of liquidated damages amounting to Rs. 5,19,15,870.

Disputes between the parties escalated, leading to invocation of arbitration under Clause 18.0 of the general conditions of contract. In notices dated 29 May 2023 and 11 August 2023, Titagarh expressly stated that it was not waiving the applicability of Section 12(5), which disqualifies certain categories of persons, including employees of a party, from acting as arbitrators unless there is a post-dispute written waiver.

Despite this, the parties proceeded under a fast-track mechanism in terms of Section 29B of the Arbitration Act, and the Railway Board appointed a serving Railway officer as sole arbitrator on 30 January 2024.

The arbitral tribunal passed its award on 5 August 2024, reinstating the contract, extending the delivery period for the remaining 390 wagons without penalties, and directing refund of liquidated damages of Rs. 5,19,15,870 to Titagarh Rail Systems Limited.

The Railway Board challenged the award under Section 34 of the Arbitration Act, and a Single Judge of the High Court set it aside on 26 February 2026, holding that the appointment of the arbitrator was contrary to Section 12(5). Titagarh thereafter filed appeals under Section 37 seeking restoration of the arbitral award.

Before the Division Bench, Titagarh contended that participation in the fast-track procedure and selection from a panel of Railway officers amounted to waiver of Section 12(5). The Railway Board, however, maintained that no express written waiver existed, as mandatorily required.

Rejecting the contention, the Court held that waiver under Section 12(5) must be explicit, informed, and recorded in writing after disputes arise, and cannot be inferred from conduct or procedural participation.

The Bench further noted that Titagarh had consistently asserted that it was not waiving Section 12(5), and no subsequent communication indicated any change in that position.

Accordingly, the High Court held that the appointment of a serving Railway Board officer as sole arbitrator was fundamentally illegal, rendering the arbitral proceedings unsustainable from inception, and dismissed the appeals while affirming the setting aside of the award.

Appearances for appellant (Titagarh Rail Systems Limited): Senior Advocate Rajshekhar Rao; Advocates Akanksha Mehra, Tanay Agarwal, Shivam Bhimsaria, Abhiraj Choudhary, Mili Tomar

Appearances for respondent (Railway Board, Ministry of Railways): Government Pleader Vinay Kaushik; Advocates Sandeep Kumar Mahapatra, Mrinmayee Sahu, Amit Acharya, Tribhuvan, Abhimanyu, Anushka Sarraf